Unknown until recently, the turmoil in financial markets have made the risk premium becomes the star of the summer.

The crises of sovereign debt in the Euro zone has made ​​in recent weeks the risk premium has gone from being a complete unknown to occupy headlines and hours of information. This concept is not only the costs that each country has to pay for its debt placed on the market. In the case of European government debt, which includes letters from bonds and obligations to one, three and ten years, the reference is the German bond bind-to-ten years. Besides placed in auctions, bonds sovereign debt traded in the secondary market for fixed income, and that is where it is determined that the risk premium will be key in determining the profitability of the following bond issues in each country.

The Greek sovereign debt crisis, which forced the European Union to bailout the Hellenic nation, heightened by the bailout of Portugal and the recent concerns about the economic sustainability of Italy have provoked that distrust of markets to focus again on Spain , raising the risk premium on its public debt above 400 basis points. This situation forced the European Central Bank to appease investors buying sovereign debt of some countries in the euro zone, including Spain.


The fear of a Spanish bailout

Although tensions on the Spanish economy have eased fears of a double dip recession in the world economy has once again set off alarms, and the Spanish risk premium returns to haunt the 300 basis points. Still, the government of Jose Luis Rodriguez Zapata and the very European Commission ruled that Spain is going to need financial support but insist deepen economic reforms initiated to control government spending and the deficit. While the bailout is an option increasingly distant, increasing the risk premium has some important consequences for crisis recovery. The first is that finance is expensive and difficult. And not only for the state, also for financial institutions. And that banks can not be funded at a reasonable price causes a contraction and the increase in credit to households and businesses, which slows down even more economic growth.

Calm the market

And the lack of investor does not stay on sovereign debt, but has also affected the stock market, causing the last August became one of the most volatile in the last decade, both the stock and for the evolution of the risk premium. To restore confidence to the market, both the Spanish Government and the European Commission have adopted a series of measures that seem to work, as the reform of the Constitution to include a deficit ceiling of the Autonomous Communities and the ban on short sales Exchange of certain securities.

This ban will be in force until the end of September and eliminates the possibility for investors to make speculative investments betting on the collapse of certain preferred securities-short investors in recent months has been the banks, especially the medium-to ended up dragging down overall rates of top European shares. However, cooling fears of emerging growth and stagnation of more mature economies make the stability of markets is still too weak, so it is probably still occurring fluctuations in the evolution of stock markets and the risk premium on sovereign debt.